Trade War and Missed Trade Opportunities Minghao Li Postdoctoral Research Associate minghao@iastate.edu, 515-294-6175 Farmland Owner Workshop Altoona, Iowa, February 15, 2019
A Quick Introduction: Dr. Minghao Li Grown up in NE China Ph.D. in Ag Econ in 2017 from Penn State Currently a postdoc research associate working with Dr. Dermot Hayes and Dr. Wendong Zhang Research and extension interests: Chinese agricultural economy, international ag trade China Ag center www.card.iastate.edu/china
Today I will talk about: The trade war African Swine Fever in China China s E10 ethanol mandate
Trade war review: US January 2018, solar panels and washing machines China Sorghum March 2018, steel (25%) and aluminum (10%) 128 products, including pork (25%)
Trade war review: US June and August, 25% tariffs on 50 $B Chinese exports China 25% tariff on 50 $B US exports, including pork and soybean September, 10% tariffs on 200 $B Chinese exports 5%-10% tariffs on 60 $B Chinese exports
Currently: The 10% tariffs on 200 $B products is scheduled to increase to 25% at the end of Febuary if negotiation fails.
China s strategy: Proportional and restrained response Target products that substitutable Target products that cause economic and political harm to the US Minghao Li, Wendong Zhang, and Chad E. Hart. 2018. "What Can We Learn about U.S.-China Trade Disputes from China s Past Trade Retaliations?"
Impacts on the US economy Impact on US welfare (think GDP): -0.14%~-0.23% Sectors that suffer most: soybeans (-15% in output value), cotton (-13%) Sectors that benefit most: electronics, steel and iron Export to China: -43.0% ~ -54.4%
The Iowa economy
Impacts on the Iowa economy Impact on Gross State Product: -1 to -2 $Billion Percentage change: -1%~-2% Trade subsidy (Market Facilitation Program) will give Iowa farmers 0.55 $Billion, no enough! Minghao Li, Edward J. Balistreri, Wendong Zhang. 2018. "The 2018 Trade War: Data and Nascent General Equilibrium Analysis. Edward J. Balistreri et. al. 2018. "The Impact of the 2018 Trade Disruptions on the Iowa Economy."
Missed export opportunity: African Swine Fever in China
Pork production in China vs. US and Iowa
What is African Swine Fever? Hog disease, does not affect humans Highly contagious, mostly through contacts Highly lethal, mostly die within 10 days
ASF in China: First case in August 2018 in NE China More than 90 cases by the end of 2018 More than 120 thousand pigs directly affected.
Cases so far:
Cases so far:
Government response: Setting up quarantine areas and culling pigs (200,000 pigs?) Banning feeding hog with food waste Restricting hog and pork transportation across provinces
Transportation restrictions cause regional hog imbalance and price divergence:
Missed export opportunity: If high prices in certain regions continue, there may be a need to import pork. However, tariffs on certain hog products have increased by 50% due to trade war. It is unlikely that China will import from the US.
Missed export opportunity: E10 ethanol mandate
China s Ethanol Mandate In 2017, China announced that it will impose nationwide E10 (gasoline containing 10% ethanol) mandate by 2020. That means, all vehicles have to use gas with 10% ethanol, no options! In China fuel ethanol is mostly made from corn. The mandate will increase corn demand by 8.3%.
China does not want to import corn (graph below: self-sufficiency rate for crops)
China wants to limit corn production (graph below: corn area planted)
There won t be enough corn to meet the E10 mandate:
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 If China continues down this path, corn price will become very high: 6000 Corn price (Yuan/ton) Our projection 5000 4000 3000 2000 1000 0
Billion Dollars If China decides to open up corn trade, the potential trade value will exceed half of the soybean trade value: 45 40 35 Import value Our projection Soybean 30 25 20 Corn 15 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Missed export opportunity: Our analysis shows that China will not be able to meet the E10 mandate with domestic production. Other than importing corn, another option is to directly import ethanol. China won t import corn or ethanol if trade dispute continues.
Thank You! Minghao Li Postdoctoral Research Associate 568F Heady Hall, Iowa State University 515-294-6175 minghao@iastate.edu www.card.iastate.edu/china